Markup vs margin: same profit, different base
Markup and margin both describe the profit on an item, and they're constantly confused. The difference is what you divide by:
- Markup is profit as a percentage of cost. It answers "how much did I add on top of what I paid?"
- Margin (gross margin) is profit as a percentage of the selling price. It answers "how much of each sale do I keep?"
Because the selling price is always larger than the cost when you make a profit, the margin is always the smaller of the two numbers. The mistake that costs sellers money is adding a target margin to cost as if it were a markup: adding 40% to a $20 cost gives $28, which is only a 28.6% margin, not 40%.
The formulas
markup = profit ÷ cost · margin = profit ÷ price
price from markup = cost × (1 + markup)
price from margin = cost ÷ (1 − margin)
margin = markup ÷ (1 + markup) · markup = margin ÷ (1 − margin)
Example: a $20 item
An item costs you $20. Here's what each mode of the calculator returns with its default inputs.
| You enter | Price | Result |
|---|---|---|
| 50% markup | $30.00 | $10.00 profit, 33.3% margin |
| 40% target margin | $33.33 | $13.33 profit, 66.7% markup |
| $30 selling price | $30.00 | 50% markup, 33.3% margin |
The first and third rows are the same sale described two ways: a $10 profit is 50% of the $20 cost and 33.3% of the $30 price.
Markup to margin conversion table
| Markup | Margin | Price on $20 cost |
|---|---|---|
| 25% | 20% | $25.00 |
| 33.3% | 25% | $26.67 |
| 50% | 33.3% | $30.00 |
| 66.7% | 40% | $33.33 |
| 100% | 50% | $40.00 |
| 150% | 60% | $50.00 |
| 200% | 66.7% | $60.00 |
| 300% | 75% | $80.00 |
"Keystone" pricing, a retail rule of thumb, means doubling the cost: a 100% markup and a 50% margin.
Tips for using markup and margin
- Set targets as margins. Margin maps directly to how much of your revenue is left to cover fees, overhead and profit, so it's easier to plan around.
- Include marketplace fees. A 50% markup on eBay, where fees take around 14% of the sale, leaves a much thinner real margin. For resellers, a flip or platform fee calculator gives the true figure.
- Know that discounts cut deeper than they look. Taking 20% off a price with a 33.3% margin cuts the margin to 16.7% and your profit from $10 to $4 on the $20 item above.
- Use markup for quick quotes. If you always add the same percentage to cost, markup is faster at the counter; just remember what margin it really represents.
Frequently asked questions
What is the difference between markup and margin?
Both measure the same profit, but against different numbers. Markup is profit divided by cost; margin is profit divided by the selling price. An item that costs $20 and sells for $30 has a $10 profit, a 50% markup and a 33.3% margin.
How do I convert markup to margin?
Divide the markup by one plus the markup: margin = markup ÷ (1 + markup). A 50% markup is 0.5 ÷ 1.5 = 33.3% margin, and a 100% markup is a 50% margin.
How do I price for a specific margin?
Divide your cost by one minus the target margin: price = cost ÷ (1 − margin). To get a 40% margin on a $20 item, charge $20 ÷ 0.6 = $33.33. Simply adding 40% to cost gives $28, which is only a 28.6% margin.
Can margin be more than 100%?
No. Margin is a share of the selling price, so it can approach but never reach 100%, which would mean the item cost nothing. Markup has no upper limit: a $5 item sold for $50 has a 900% markup but a 90% margin.
Should fees be part of cost?
For resellers, yes. If a marketplace takes 13% of the sale, your real margin is lower than the one calculated from item cost alone. Use a fee calculator for the platform, or add expected fees and shipping to the cost field for a truer picture.
This calculator gives estimates for planning. Check current rates and product labels before you buy, list or file.